There haven’t been any developments to alter our earlier view, namely that the eurozone economy will grow this year faster than last year’s 1.7 percent. In fact, the current strength points to 1.5 percent GDP growth next year too, especially if the political picture continues to be supportive.
We had flagged politics as one of the main issues that could derail the economic recovery. It is evident now, though, that populism is finally, and rapidly, loosing ground in the Continent–while a strong revival in the Franco-German alliance is taking place.
After the expected re-election of Angela Merkel as Chancellor, Germany and France will make a new push for even greater integration. This isn’t just something that’s needed, but it is also starting to be expected by many people in the EU.
There’s a widespread understanding in Europe these days that little is to be expected by the so-called Anglo-Saxon leadership. Both of its main representatives, the US and Great Britain, are still dealing with domestic problems that are often basic.
As a result, its global political leadership is often absent. And when present, it’s erratic. Nevertheless, the US remains the country in which Europeans still have more faith than their British peers. Improved cooperation would be beneficial to both the EU and the US.
Turning back to the economy, the big positive is that more countries have been growing faster than expected. Therefore, current economic strength can be sustained, although probably without much more acceleration, into next year.
Looking back, the recovery in the eurozone was led by exports with the consumer eventually picking up to take advantage of low inflation and easy financing. Business investment’s growth, although visible, is taking longer to emerge and is often volatile.
As a result, capital expenditure investment will continue to recover, albeit slowly. This is largely because the global economy should remain supportive. Even with the euro strengthening, the corporate sector will continue to improve its financial health and profitability due to global growth partly offsetting euro strength.